Course

introduction
&
Resulting Trusts
Lectures 1 and 2
LAWS4152 – Term 2
2017-2018
1
Today’s Agenda

• Introduction to the course

• Introduction to Resulting Trusts

• Topic 1: Automatic Resulting Trusts (Part 1)

2
COURSE INTRODUCTION 3
Teaching in Term 2
• Course Leader: Mr. Elliot Fung
• E-mail: elliotfung@cuhk.edu.hk
• Office: Faculty of Law 6/F (ask reception)
• Office hours by appointment

• Tutorial leader: Prof. Noam Noked

• E-mail: noam.noked@cuhk.edu.hk
• Office: Faculty of Law 6/F (ask reception)
• Office hours by appointment

4
Overview of Topics in T2
• Implied trusts
• Automatic resulting trusts
• Presumed resulting trusts
• (Constructive trusts will show up in various topics below)

• Strangers to the trust

• Secret trusts and mutual wills

• Trustees
5
• Tracing
Course objectives
• The doctrines and concepts of equity

• The principles relating to the main types of trusts

• The remedies developed by equity and how they assist a

claimant in other areas of law (such as contract law,
company law and land law)

• You will also be able to show an awareness of, and to

discuss, some of the problem areas in equity and trusts
and of advanced scholarship in the field 6
Prescribed texts
• Primary Text
• Gallagher, Steven, Equity and Trusts in Hong Kong: Doctrines, Remedies
and Institutions, Thomson Reuters, 2017

• Secondary Text
• Ma & Lower, Principles of Equity & Trusts Law in Hong Kong, LexisNexis,
2015

• Texts with a focus on English law

• Watt, G., Trusts and Equity; Casebook e.g. Todd & Watt’s Cases &
Materials on Equity and Trusts

• Hudson, A., Equity & Trusts 7

Assessment
• Final exam – 90% (open book)

• More details will be provided later in the semester & review

session at the end

• Participation – 10%

• Equity in Society Project

• Group or individual
• Attend tutorial in week 6
• Complete progress report (template will be provided)
• Attend meeting in week 8 8
• Submit report (template will be provided)
INTRODUCTION TO RESULTING TRUSTS 9
Review of Term 1

• The Maxims of Equity

• The Trust

10
The Trust For big assets, the settlor may be the trustee to hold the legal title

重點：考慮 trust 定 gift

the "invisible" string (your property right) is recognised in Equity

indirect gift 私⽣生⼦子 best illustration - cloth trust quality into it

留留意FACTS! Equity

magic moment of transfer!

figure out what should happen
to the property afterwards

Has there been a split?

gift: legal title and beneficial title
trust: legal title, T not acquire the property but for benefit of someone else

Settlor Trustee Beneficiary

11
 Constructive
Trusts
• 3 Certainties
IMPLIED • Perfection / constitution
EXPRESS
TRUSTS • Formalities
• Capacity TRUSTS
Presumed • Etc.
Resulting
Trusts

Automatic
Resulting
Trusts
Resulting
Trusts
12
 A, C, E, B, D, F,
X, Y Z

Negotiation of terms

The Contract
Tort
“Express Terms” “Implied Terms”
I. […] Representations
Written Contract Oral Terms J. […] X
A. […] E.[…] K.[…] Y
B. […]
C. […] F.[…] L.[…] Z

D. […] G.[…]
H.[…]
(Signed) …

13
What is an “implied trust”?
Does the trustee aware of the trust property?

• Distinguishing between an express vs. implied trust

• Recall the requirements for creating an express trust:

• A valid declaration of trust; and

• Valid constitution of the trust

14
When does a resulting trust arise?

• Examples

15
What is a “Resulting Trust”?
• What is meant by “Resulting”?
logic: the asset still belong to settlor
if trust failed, sensible option is to result back to the settlor
- safety net to make settlor’s asset "not a penny less, not a penny more"
Express trust - outwards

• In latin, Saltare means to “jump”, “leap”, “spring”

• Resulto / Resultare means:

• To “Rebound”

• To “Spring-back”
16
When does a Resulting Trust arise?
• Vandervell v IRC [1967] 2 AC 291 at 312D-314B per Lord
Upjohn:

“Where A transfers…the legal estate in property to

B otherwise than for valuable consideration it is a
i.e. gift (not contract)

question of the intention of A in making the

transfer whether B was to take beneficially or on
trust, and if the latter, on what trusts.”

(emphasis added)
17
Vandervell v IRC (cont’d)…

“…If, as a matter of construction of the document

transferring the legal estate, it is possible to discern
A’s intentions, that is an end of the matter and no
extraneous evidence is admissible to correct and
qualify his intentions so ascertained.”

“But if,…the document is silent, then there is said to

arise a resulting trust in favour of A. But this is only a
presumption and is easily rebutted. All relevant facts
and circumstances can be considered in order to
ascertain A’s intentions with a view to rebutting this
presumption…” figure out from the nature of transaction (gift or trust)

(Emphasis added) 18
Vandervell v IRC (cont’d)…

“…But the doctrine of resulting trust plays another very

important part in our law and, in my opinion, is decisive of this
case.
when express trust fails, the resulting trust bounds back to settlor

If A intends to give away all his beneficial interest in a piece of

property and thinks he has done so but, by some mistake or
accident or failure to comply with the requirements of the law,
he has failed to do so, either wholly or partially, there will, by
operation of law, be a resulting trust for him of the beneficial
interest of which he had failed effectually to dispose. If the
beneficial interest was in A and he fails to give it away effectively
to another or others or on charitable trusts it must remain with
19
him.” (emphasis added)
Also in Re Vandervell (No.2) [1974] Ch 269
at 289 per Megarry J
“The distinction between the two categories of resulting trusts
is important because they operate in different ways.

Putting it shortly, in the first category, subject to any provisions

in the instrument, the matter is one of intention, with the
rebuttable presumption of a resulting trust applying if the
intention is not made manifest…” (emphasis added)

(i.e. a presumed resulting trust)

1. PRT - it wasn’t meant to be a gift (circumstance)
2. ART - intention clear not a gift, but failed

20
Re Vandervell (No.2) (cont’d)…
“For the second category, there is no mention of any expression
of intention in any instrument, or of any presumption of a
resulting trust: the resulting trust takes effect by operation of
law, and so appears to be automatic. What a man fails
effectually to dispose of remains automatically vested in him,
and no question of any mere presumption can arise. The two
categories are thus of presumed resulting trusts and automatic
resulting trusts” (emphasis added)

(i.e. an automatic resulting trust)

21
3 Resulting Trust Scenarios
technical error (three certainties, consititution)

1. “FAILED TRUST” Scenario - Where the owner of property fails to

completely dispose of their beneficial interest in that property, then
equity may decree that the property be automatically returned to
him/her.
no explanation why S give T - suspicious - subject to
evidence/ circumstances/ relationship

2. “VOLUNTARY TRANSFER” Scenario - Where an owner of property

gratuitously disposes of the property without clear indication that a
gift or other purpose was intended, then equity may presume the
original owner always intended to have that property returned (i.e.
resultare!) to him/her.

3. “PURCHASE MONEY” Scenario - Where a person pays for the

purchase of a property that is to be held in the name of another
person, then equity presumes that other person holds the property
on resulting trust for the person who provided the money. Minibus driver case
A 出錢 B 留留名

(See, Gallagher at p.307; and Davies & Virgo (2013) at ch.8) 22

Classic analysis of Resulting Trusts

Resulting Trusts

Automatic Resulting Trust Presumed Resulting Trusts

• Failure to dispose of the • Voluntary transfers
beneficial interest • Purchase Money

• Failure of the trust

Presumption of advancement
o The ‘Quistclose’ trust
• Recognized relationships
• Surplus funds
Actual evidence of intent
23
AUTOMATIC RESULTING TRUSTS 24
When does an automatic resulting
trust arise?
The circumstances were described in the various “Vandervell” cases:

“If A intends to give away all his beneficial interest in a piece of

property and thinks he has done so but, by some mistake or accident
or failure to comply with the requirements of the law, he has failed
to do so, either wholly or partially, there will, by operation of law, be
a resulting trust for him of the beneficial interest of which he had
failed effectually to dispose” (Vandervell v IRC)

“What a man fails effectually to dispose of remains automatically

vested in him, and no question of any mere presumption can arise…”
(Re Vandervell (No.2))

“…the beneficial interest must belong to or be held by somebody so if

it was not to belong to the donee or be held by him in trust for
somebody it must remain with the donor” (Vandervell v IRC) 25
Common failed trusts scenarios
• There are many ways in which a trust can fail. Three
categories of failures are particularly well known:

• Failure to dispose of the beneficial interest;

• Failure of the trust

• Surplus funds

26
ART Scenario 1: Failure to dispose of the
beneficial interest
• Re Boyes (1886) 26 ChD 531

• Boyes makes a Will transferring all of his property to his solicitor

friend Carritt. Carritt was also named executor. T legal owner to handle property

• Boyes told Carritt that the property was to be held on trust and to
be dealt with according to further directions.

• Such further directions did not come during Boyes’ lifetime. After
his death, 2 letters were found in his belonging, instructing Carritt
to keep £25 and to transfer the rest to a Mrs. Brown.

27
• Challenge by Boyes’ next of kin.
Re Boyes
Boyes Carritt Brown

express trust

failed on three certainties

implied trust

28
Boyes’ next
of kin
ART Scenario 1: Failure to dispose of
the beneficial interest
• Vandervell v IRC [1967] 2 AC 291
• Vandervell (“V”) was the majority shareholder of Vandervell Products
Ltd. (“VPL”).

• V wanted to give £150,000 to the Royal College of Surgeons (“RCS”)

to endow a Chair of Pharmacology.

• Paying cash would not have been tax efficient. So to effect this gift, V
instructed his bank to transfer 100,000 shares in VPL to RCS and then
VPL would declare dividends in the amount £150,000.

• As VPL might later go public, part of this transaction required RCS to

also grant an “option” to repurchase the 100,000 VPL shares for the
price of £5,000.

• The option was granted to another company, Vandervell Trustees Ltd. 29

(“VTL”) (which acted as a trustee for various Vandervell family trusts).
VTL was owned and managed by professional accountants/solicitors.
Vandervell v IRC [1967] 2 AC 291
How to become a good tax planner?
- reduce taxable assets
- for future planning

Mr. Vandervell IRC Even Mr V wants to give away, the law forces it back
Dividends
£

gift to RCS to reduce tax (cash - stamp tax)

Royal College of
Surgeons

Bank
major shareholders
Option
so arrange share transfer to RCS, declare dividends

to purchase back those shares

Vandervell Vandervell
Products Ltd. Trustees Ltd.

Vandervell Trustees

30
- always intended to be vehicle to hold trust
- clearly not gift to VTL, but for the benefit of Mr Vandervell
- result back to Mr Vandervell, subject to taxation

NB: different academic views

Beneficial Interest of the option?
Key: Do T hold as a gift or a trust for others’ benefit?
ART Scenario 2: Surplus Funds fund-raising

• What happens if to any remaining funds after the purpose of

the trust has been achieved?

• Re Trusts of the Abbott Fund [1900] 2 Ch 326

• Dr. Abbott of Cambridge died leaving 2 daughters who were deaf

and dumb. The trust fund he established to support them
became depleted and the last surviving trustee had also died.
Abbott Fund eventually exhausted after Abbott’s death (his asset is limited)

• Dr. Fawcett of Cambridge helped raise money and created a fund

from friends for the purpose of supporting the 2 daughters.

• When the daughters eventually died, there was still £366.70

31
remaining.
Good sympathetic argument: Fawcett’s effort in raising fund but
Policy consideration: if there is a precedent, Buy Steven a gift, the fund raiser may be incentivised to buy a cheap gift then profit from the surplus
- abuse the fund and trust quality, therefore bounce back to the settlor
Re Trusts of the Abbott Fund [1900] 2 Ch 326

£366.70
32
Why can’t the trustee keep it?
• The principle was stated in Carreras Rothman Ltd v Freeman
Matthews Treasure Ltd [1985] Ch 207 at 222B per Gibson J:

“[E]quity fastens on the conscience of the person who receives

from another property transferred for a specific purpose only
and not therefore for the recipient’s own purposes, so that such
person will not be permitted to treat the property as his own or
use it for other than the stated purpose.”
blue arrow: the magic moment of transfer

• In other words, it was not the intention that the trustee was
being given the property for his/her own benefit.
Term 2 key: how to give back to settlor?
33
ART Scenario 2: Surplus Funds
• Re Gillingham Bus Disaster Fund [1958] Ch 300

• 4 Dec 1951 – a tragic traffic accident in Gillingham, Kent. A bus

lost control and struck a squad of Royal Marine Cadets, killing 24
and injuring others.

• Local Mayors advertised that a Royal Marine Cadet Corps

Memorial Fund was being set up for the purpose of defraying
funeral expenses, caring for boys disabled by the accident, and
then to such worthy cause or causes in memory of the boys as
the mayors may determine.

• £9,000 was received from people all over the country. Some
could be identified, others could not. Since the bus company 34
paid damages, there was a lot of money left over.
Re Gillingham Bus Disaster Fund (Cont’d)
Key: how to deal with surplus?

Injured

£ Gillingham Bus
Disaster Funeral
Fund expenses
£2,368

“such worthy
cause or causes
residual clauses
in memory of the
boys who lost
practical concern: to street raiser?
- F cannot keep the surplus
£ their lives as the
Mayors may 35
- bona vancantia? (once cannot identify the owner)
The settlor does not intend to give to government, last resort
—> paid back to Court, Court to hold on trust
Surplus determine”
conceptual uncertainty, it fails
Re Bucks Constabulary’s Widows and Orphans’
Fund Friendly Society (No 2) [1979] 1 WLR 936
Key: how to deal with the surplus?
Existing members take a portion when they leave (contractual clause)

• The society was a registered but unincorporated society under

the Friendly Societies Act 1896 in the UK. Its members signed
a contract abiding by the society’s rules.

• It collected contributions from its members for the purpose of

providing relief to the widows and orphans of
deceased/infirmed constables (i.e. its members).

• The Society was wound up (after it merged with another

society) and there was still a substantial surplus. The trustee
sought the direction of the Court as to how the surplus should
be dealt with. 36
Air Jamaica Ltd v Joy Charlton [1999]
1 WLR 1399
• Air Jamaica operated a pension scheme for its employees.
The company and employees both contributed to the scheme.

• There was a clause in the trust deed which said “No moneys
which at any time have been contributed by the company
under the terms hereof shall in any circumstances be
repayable to the company”.

• After the airline was sold, there was a surplus of $400k

remaining.

• Air Jamaica, the members of the scheme (ex. employees, ex-

employees and pensioners), and the Government of Jamaica 37
all made claims on the surplus.
Air Jamaica Ltd v Joy Charlton (Cont’d)
• Lord Millett at 1411:

“Prima facie the surplus is held on a resulting trust for those

who provided it. This sometimes creates a problem of some
perplexity. In the present case, however, it does not.
Contributions were payable by the members with matching
contributions by the company. In the absence of any evidence
that this is not what happened in practice, the surplus must be
treated as provided as to one half by the company and as to one
half by the members.”

38
ART Scenario 3: Failure of the Trust
• There are many ways in which a trust may subsequently fail
after it comes into existence. For example, the purpose of the
trust may cease to exist.

• Re Ames Settlement [1946] Ch 217

• 27 Apr 1908 – John Ames’ father agreed to settle 10,000l under a
standard marriage settlement trust to the married couple and
then to their issue, then to next of kin. for the purpose of supporting the beneficiaries (the couple)

• 28 Apr 1908 – John Ames & Miss Hamilton married and the
father transferred the money to a trustee.
• 1926 – Marriage annulled (Incapacity to remarry). John Ames
and Miss Hamilton subsequently renounced their interests under
the marriage settlement trust.
• 1945 – John dies. His next of kin sue the trustee for the settled 39
funds.
Re Ames Settlement [1946] Ch 217
Marriage settlement: Daughter is married so that Husband cannot take all her assets (matrimonial),
to create a trust that it donates money, give to Trustee so that he distribute the fund from time to time

Marriage
Father Trustee Next of kin
Children
£10,000

???
the purpose of the trust has failed, how to deal with the fund?
40
- next of kin: only express trust, sue T that he should continue to distribute
- ART: the blue arrow (not giving to T beneficiary), the asset has trust quality, T hold on trust for Father
ART Scenario 3: Failure of the Trust (cont’d)

• Another common situation of “failure of

purpose”:

The Quistclose Trust

• Where A transfers property (usually money) to B
for a specified purpose, and that purpose
subsequently fails, then equity will treat B as
holding the property on (automatic?) trust for A.
41
Barclays Bank v Quistclose [1970] AC 567

• 1964 - Rolls Razor’s (“RR”) business was in financial difficulty. RR

already owed money to Barclays Bank in an overdraft account.
Further, RR had earlier declared dividends but did not have any cash
to pay it. declaration of dividends
issue of dividends
—> time lapse

• RR was able to get a loan from Quistclose Investments Ltd., on

condition that the loan “is used to pay the forthcoming dividend due
on 24 July next”. The loan was paid into a separate bank account at
Barclays and all parties knew of the purpose to pay the dividends.

• Before the dividends were paid, RR went into liquidation.

• Could Barclays Bank set off the loan against the overdraft account? 42
 Barclays Bank v Quistclose [1970] AC 567
BB treat No.4 account as overdraft account money (legal owner)
Q argues there is a trust quality, BB is holding on trust, purpose failed, result back to Q
- the trust is a form of security to protect lenders interest
Barclay’s Bank - Prior to QT, the usual form of security is have a charge claim over a property.
QT a higher level of protection (higher than secured creditors), bringing a proprietary claim.
The asset never come into the equation of debtors’ assets.

Overdraft No.4 Dividend

Account Share Account
?
(£484,000) £209,719 8s. 6d.
Dividends

daily business, already negative

Cheque
£209,719 8s. 6d.
Rolls Razor Quistclose
Liquidation
Ltd. urgent money from Quistclose Ltd. 43
In the loan agreement, the cheque is
expressly for the purpose of paying
dividends, no other usage to protect
the loan (segregation)
Brief overview of liquidation

shareholders Secured
Creditors they ask for securities

Company
Employees
manager

directors

General
Business Creditors
44
 Brief overview of liquidation

Secured
Creditors

Company
LIQUIDATOR
Employees

all the creditors will start Court

proceedings to wind up the company

Business General
Creditors
(Losing money!!!) 45
Barclays Bank v Quistclose [1970] AC 567

• Lord Wilberforce at 580C-D:

“That arrangements of this character for the payment of a

person’s creditors by a third person, give rise to a relationship of
a fiduciary character or trust, in favour, as a primary trust, of the
creditors and secondarily, if the primary trust fails, of the third
person, has been recognised in as series of cases over some 150
years…” QT to RR: express primary trust
When it failed, it fall by secondary trust, result back to QT

(emphasis added)

46
Barclays Bank v Quistclose [1970] AC 567
• And continuing at 581G-582B:

“…when the money is advanced, the lender acquires an equitable right

that it is applied for the primary designated purpose…when the purpose
has been carried out (i.e., the debt paid) the lender has his remedy against
the borrower in debt: if the primary purpose cannot be carried out, the
question arises if a secondary purpose (i.e. repayment to the lender) has
been agreed, expressly or by implication: if it has, the remedies of equity
may be invoked to give effect to it, if it has not (and the money is intended
to fall within the general fund of the debtor’s assets) then there is the
appropriate remedy for recovery of a loan…”

“…in the present case the intention to create a secondary trust for the
benefit of the lender, to arise if the primary trust, to pay the dividend,
could not be carried out, is clear and I can find no reason why the law
should not give effect to it.”
47
(emphases added)
Barclays Bank v Quistclose [1970] AC 567
What is the logical basis of such return?

• Advantages?
• Protects the lender. The lender enjoys a security (a proprietary
right!) on the loan until the purpose is satisfied. After the
purpose is fulfilled, the relationship reverts to a simple creditor-
debtor relationship.

• This form of securities makes it easier to obtain loans. Lenders

have more reassurance that their interests are protected. (More
businesses will be saved)

• Fewer formalities than traditional securities (ex. charges) and

possibly less publicity (c.f. registration of charges).
48
Barclays Bank v Quistclose [1970] AC 567

• Disadvantages?
• Lack of publicity may give creditors a false sense that the
company is in better financial state than it actually is
(misleading). May result in excessive credit being taken out.

• A lender with a Quistclose trust claim would enjoy a proprietary

claim over the property. This would leapfrog ahead of all the
other creditors and create a feeling of unfairness.
QT cut the queue of other creditors

49
Alternative views of the Quistclose Trust

• Barclays Bank v Quistclose:

• A primary express trust (primary) from the lender to the
borrower for the benefit of the purpose;
• followed by a secondary resulting trust should the purpose fail.

• But this analysis has been questioned, most notably in

Twinsectra Ltd v Yardley.

50
Twinsectra Ltd v Yardley [2002] AC 164
• Mr. Yardley obtained a loan of £1M from Twinsectra Ltd. for the purpose of
purchasing a piece of land in Bradford.

• As security, Twinsectra required a personal undertaking for the loan from a

solicitor. Mr. Yardley’s 1st solicitor, Mr. Leach, refused. Mr. Yardley secured a 2nd
solicitor, Mr. Sims, who owed him £1.5m from other dealings to give the
undertaking. personal guarantee from solicitor Sim to borrow money from Twinsectra

• Twinsectra advanced the £1M to Mr. Sims on his express undertaking that:
• “(I) the loan moneys will be retained by us until such time as they are applied in
the acquisition of property…”;
• “(ii) the loan moneys will be utilised solely for the acquisition of property…and for
no other purposes…”

• The £1M was released to Mr. Leach, who released it to Mr. Yardley. Mr. Yardley
used £357,720.11 to repay debts not connected with the purchase of property.
Mr. Yardley became bankrupt and unable to repay Twinsectra.

51
 Twinsectra Ltd v Yardley (Cont’d)

Mr. Yardley Mr. Leach Mr. Sims

£1,000,000 £1,000,000 £1,000,000

Twinsectra
Ltd
Undertaking
unauthorized purposes (red boxes)
£22,000
Then Mr Y went bankrupt,
Mr. Leach’s sue Mr L (tracing) and Mr Sims (trustee)

Conveyancing fees

£580,875 QT: express primary trust, then ARTIFICIAL secondary trust

£357,720.11 Property acquisition Twinsectra: not express trust followed by the resulting, simply RT at the beginning
Other academics: purely contract
Non-property • Stourbridge
purchase purposes • Droitwich
• Apperley Bridge 52
Twinsectra Ltd v Yardley (Cont’d)

• Tutorial Issue: What kind of trust is a “Quistclose Trust”?

• BEFORE THE 2nd TUTORIAL, PLEASE READ:

• Barclays Bank v Quistclose [1970] AC 567
• Twinsectra Ltd v Yardley [2002] AC 164

• If time allows, you can also supplement your reading with:

• Air Jamaica v Charlton [1999] 1 WLR 1399 (Pay attention to Lord
Millett’s discussion/views on a resulting trust)
• Bieber v Teathers Ltd (In Liquidation) [2012] EWCA Civ 1466 (CA)
(But pay attention to Norris J’s summary of the points of a Quistclose
trust at in the 1st instance judgment, at [2012] EWHC 190 (Ch) at
paragraphs 16-23) 53
Next time:

• Resulting trusts

• Automatic resulting trusts (Done)

• Presumed resulting trusts (Next - BIG TOPIC!)

• Justifications for recognizing resulting trusts (Next)

54